Mortgage Loan Modifications are Happening

July 8, 2009 by Julio
Filed under Loan Modificiation

Thanks to President Obama’s Foreclosure-Prevention Program, mortgage loan modifications are on the move. Prior to this, mortgage rearrangements to help reduce the repayment burden of people finding it difficult to make repayments were few and far between, and many were being refused. Now, however, things are changing, and an increasing number of people are being successful with their applications.

In order to qualify for modification to your mortgage loan, you must owe less than $729,750 and have purchased your house prior to 2009. It must also be your primary residence, and you must be behind on your payments. However, there is a specific set of paperwork you will have to complete, and a procedure that has to be followed. Get that wrong and your chances of success are slim.

Prior to the foreclosure-prevention program, mortgage lenders would offer loan modifications, or mortgage rearrangements, but only around a third of these resulted in the borrower actually paying less each month. In some cases they were even asked to pay more, because the mortgage was modified by accumulating all the arrears of interest and charges into a capital sum to be repaid monthly along with the regular payments. That might have been good for the lender, but had little effect in making it easier for people to pay! In fact up to 45% were asked to pay more after the mortgage modification than before it.

Another thing that was happening was that groups of lenders were preventing modifications because they were financially better off forcing foreclosure. Automated foreclosures offer financial incentives that case-by-case modification agreements do not. However, they were still possible to get if you knew the right people and the right advisors.

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Your only other options were bankruptcy or a short sale, both of which result in you losing your home, unless you are in negative equity where you owe more than your home is worth. In such a case it is debatable whether you should want to keep it for other than sentimental reasons. You would be paying for a property you don’t actually own, and would be better going bankrupt and getting free of all your debts one go., other than some that are exempt such as unpaid federal taxes and a few others.

Things have now changed, however, and lenders have been asked to get your monthly payments down to 38% of your monthly income. They can do that through a mortgage loan modification, using any means at their disposal. Once that has been achieved, the government will then fund them to get your repayments down another 7%, to 31% of your earnings. These are your gross earnings, incidentally, before the deductions. Many people are currently repaying over half.

There is still a complex procedure to follow that can discourage many people from applying, however, and you should seek some help in doing so. This can come in a number of ways, but two possibilities are employing an advisor to carry out the process for you, and get you a mortgage modification, or paying a good bit less for written guidance and a set of templates and documents that walk you through the entire application procedure.

It is more than just making an appointment with your mortgage lender, and then requesting a mortgage rearrangement. You have to take all the right steps or they will refuse. Keep in mind that mortgage loan modifications are not the same as mortgage restructuring, where the entire mortgage package is changed to render it more attractive to you. Restructuring is not an option open to those in arrears, only a modification.

If you intend making an application, keep in mind that loan modifications are often forced on lenders, and they will be less than 100% willing to offer you one. You absolutely must follow the correct procedure as outlined by the foreclosure-prevention program, and for that you need the right information. Without that you are dead in the water and will have more than even chance of losing your home.

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